Why You Need a Corporate Minute Book
Most people form a legal entity to shield their personal assets. Did you know that keeping good records of your company's actions can further reduce your personal liability?
If your company is ever sued, the other party's attorney is probably going to ask to see your company's records during the discovery phase of litigation. He or she is looking to determine the best way to recover damages for their client, and don't care whether they are business or personal assets. If you have more assets held in your personal name, the attorney may attempt to recover your personal assets despite the corporation protection. This is called "piercing the corporate veil" and is the most litigated issue in corporate law.
The corporate law concept of piercing the corporate veil describes a legal action where a shareholder or director or member of a legal entity is held liable for the debts or liability of the company depite the general principle that shareholders or members are immune from suits in contract or tort that otherwise would hold only the corporate entity liable. Piercing the corporate veil is typically most effective with smaller privately held business entities in which the company has no assets. In this situation, Plaintiffs will usually seek to hold a related person with more assets liable rather than a small business with no assets. (Wikipedia.com)
One way to reduce your personal risk is to keep good company records. This shows that you are serious about running your company legitimately. It's not difficult and only takes a few minutes once you have a system in place. Law firms assemble corporate minute books for their clients when they are retained to form a legal entity. You can assemble one yourself or you can contact me for assistance.
The important items that should go in your book are your formation documents, tax documents, business licenses, and anything else you think should go into your book. Additionally, each time your company takes an action that will materially impact your business, such as merging with another company or purchasing property (to name a few examples), the owners should prepare a written resolution authorizing them to take the specific action. A written resolution in lieu of a formal meeting is fine when signed by all the owners or officers. The original fully executed copy should be placed into the company's minute book.
I network with several attorneys here in Phoenix who stress the importance of limited liability companies keeping records similar to a corporation. Generally, we know a lot about how corporations are treated in the courts. Limited liability companies have not been as tested in the courts simply because they have not been in existence as long as corporations. As such, I think the standard for recordkeeping with a LLC is higher than a corporation.
Simply put, keeping good corporate records is a must for an owner of a business to reduce personal liability. It also makes sense to have all your company's records organized and in one place. Losing a key document is inconvenient and a hassle to replace.
If you have any questions or need additional information, please feel free to e-mail me at Christine@DesertEdgeLegal.com.
If your company is ever sued, the other party's attorney is probably going to ask to see your company's records during the discovery phase of litigation. He or she is looking to determine the best way to recover damages for their client, and don't care whether they are business or personal assets. If you have more assets held in your personal name, the attorney may attempt to recover your personal assets despite the corporation protection. This is called "piercing the corporate veil" and is the most litigated issue in corporate law.
The corporate law concept of piercing the corporate veil describes a legal action where a shareholder or director or member of a legal entity is held liable for the debts or liability of the company depite the general principle that shareholders or members are immune from suits in contract or tort that otherwise would hold only the corporate entity liable. Piercing the corporate veil is typically most effective with smaller privately held business entities in which the company has no assets. In this situation, Plaintiffs will usually seek to hold a related person with more assets liable rather than a small business with no assets. (Wikipedia.com)
One way to reduce your personal risk is to keep good company records. This shows that you are serious about running your company legitimately. It's not difficult and only takes a few minutes once you have a system in place. Law firms assemble corporate minute books for their clients when they are retained to form a legal entity. You can assemble one yourself or you can contact me for assistance.
The important items that should go in your book are your formation documents, tax documents, business licenses, and anything else you think should go into your book. Additionally, each time your company takes an action that will materially impact your business, such as merging with another company or purchasing property (to name a few examples), the owners should prepare a written resolution authorizing them to take the specific action. A written resolution in lieu of a formal meeting is fine when signed by all the owners or officers. The original fully executed copy should be placed into the company's minute book.
I network with several attorneys here in Phoenix who stress the importance of limited liability companies keeping records similar to a corporation. Generally, we know a lot about how corporations are treated in the courts. Limited liability companies have not been as tested in the courts simply because they have not been in existence as long as corporations. As such, I think the standard for recordkeeping with a LLC is higher than a corporation.
Simply put, keeping good corporate records is a must for an owner of a business to reduce personal liability. It also makes sense to have all your company's records organized and in one place. Losing a key document is inconvenient and a hassle to replace.
If you have any questions or need additional information, please feel free to e-mail me at Christine@DesertEdgeLegal.com.
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